Hydro Quebec Flirts with Crypto Mining Supply Management

Hydro Quebec, one of the cheapest purveyors of electricity in North America, is proposing to constrain supply of electricity to crypto miners in the province while also charging a premium price on electricity for their power hungry equipment.

A VERY brief intro to crypto mining

Crypto mining refers to the process used to validate transactions on a respective blockchain of most cryptocurrencies.

Many cryptocurrencies, including Bitcoin and Ethereum, currently utilize a consensus protocol called Proof of Work which requires large amounts of processing power (and thus electricity) to win a cryptographic race to ensure the validity of transactions.

A massive amount of electricity is needed to make sure transactions are valid — that is done by design so that it becomes prohibitively expensive to hack the system. Miners get a reward for expending all this power to provide a financial incentive for them to contribute to the network.

Crypto Miners will Bid for Access to a Limited Supply of Power

In a press release last week, the largest public utility in Canada announced they will propose to the local regulatory tribunal to allocate 500 megawatts of power to the industry. Furthermore, allocation of that limited supply would be based on a selection process based on the benefits to the province.

The criteria for this selection will be based on several factors:

Agreement to pay a premium of at least $0.01 CAD/kWh more than the industrial power rates

The number of direct jobs created per megawatt requested

Total payroll of direct jobs in the province per megawatt requested

Investments per megawatt requested

Quebec is a Good Source of Renewable Power for an Industry That Needs to Clean Up Its Perception

Canada, and Quebec in particular, is a desirable place for many crypto miners due to its relatively cooler temperatures and cheap sources of power.

Not only is power in Quebec cheap, but based on data from Canada’s National Energy Board, in 2016 99% of Quebec’s electricity supply was generated by relatively clean sources of energy.

Quebec is Opening the Door for Crypto Miners Again but Only a Crack

While the move to allocate supply provides a way forward for cryptocurrency miners in the province after a temporary halt on processing of requests for access to power, it’s yet another example of regulators trying to get their hands around the burgeoning cryptocurrency ecosystem.

The rationalization of these new regulations are to prevent demand for power from exceeding the short- and medium-term power generating capacity.

But in limiting availability of power for miners who have flocked to the province, Hydro Quebec is essentially limiting the ability of miners from taking advantage of a valuable electricity price arbitrage.

Quebec could have played a role in turning the perception of crypto being an environmental disaster to a way to drive investment in renewable and efficient energy. This could have created a new decentralized normal for power so to speak, but instead chose to pump the brakes on an industry it’s still trying to understand.

Don has over 15 years of technology, business and start-up experience focusing on software, hardware integration and project management. Don's research at Grizzle explores the intersection of technology and money. Don holds an MBA from HEC Paris.